We’ve become all too familiar with those suspicious emails with dodgy links and text messages about parcels we never ordered. So much so, that they’ve almost become obvious to us, but pension scams can be harder to spot.
What is a pension scam?
Pension scams commonly take the form of an investment in (or a transfer to facilitate an investment in) a product that is at best misleading and at worst outright fraud, potentially resulting in the complete loss of a person’s retirement savings.
What are the signs to look out for?
There is a growing list of warning signs for pension scams as the methods employed become more sophisticated, but the main ones to look out for are:
Cold callers
Most pension scams will be initiated via a cold call or otherwise unsolicited contact, normally offering a free review of your pension. Cold calling about pensions has been outlawed by the Financial Conduct Authority (FCA) since 2019 and no legitimate adviser would ever contact you out of the blue to encourage you to transfer your pension. So, if you ever get a cold call about your pension, just put the phone down!
Guaranteed risk-free returns
This is the favoured approach of a pension scammer. They make their investment opportunity sound like a foolproof way to vastly increase your pension fund, often promising inflated guaranteed returns of 16% or more, or perhaps even the opportunity to double your money, all at no risk to your initial capital. While it may be possible in some cases to achieve a substantial return from an investment, there will always be a correlating high risk of loss involved. Sadly, there is no such thing as a low-risk, high-reward investment, otherwise we’d all be doing it!
Time pressure
If a salesperson is aggressively encouraging you to transfer your funds by an imminent deadline, it is unlikely to be anything other than a scam. In truth, there’s no set window to close or a limited opportunity to invest – they just want you to hand over the money before you have a chance to investigate their scam in more detail or seek the guidance of an adviser who would see through it. Always take your time before making any decisions regarding your pension fund to ensure you are comfortable with how your hard-earned money is being invested.
Accessing your pension before the age of 55
Under current pension legislation, accessing your pension funds before the age of 55 brings about potentially hefty tax consequences, except in cases of a protected pension age or serious ill health. Therefore, if anybody is offering you the opportunity to ‘unlock’ or otherwise draw money from your pension scheme before the age of 55, this will almost always be a scam. Any ‘cashback’ you receive from the transaction will simply be a portion of your own pension money upfront, while the scammer makes off with the rest. Not only that, but you may also be liable for a tax bill of up to 70% on the value of the amount accessed once HMRC finds out about the unauthorised payment, along with potential de-registering charges applied to any remaining funds.
How do I avoid falling victim to a pension ?
The best ways to protect yourself from pension scams are to become familiar with the tactics used by fraudsters, or to seek guidance from a regulated financial adviser. Some fraudsters may try to pass themselves off as legitimate advisers, so always ensure that whoever you are dealing with is appropriately authorised by the FCA. You can do this by searching their register here: https://register.fca.org.uk.
While undertaking due diligence can rule out the risk of a scam, your pension provider/trustees of your pension scheme will normally complete specific checks to help identify any ‘red flags’ where the receiving scheme for a transfer is a cause for concern, which may result in a referral to MoneyHelper or, in some cases, a refusal to transfer. MoneyHelper is a Government service providing free and impartial guidance on financial and pension matters. You can read their guidance on pension scams here: https://www.moneyhelper.org.uk/en/money-troubles/scams/how-to-spot-a-pension-scam.
If you receive contact you suspect to be a scam, you can report it to the FCA by calling 0800 111 6768. The FCA has launched a campaign called ScamSmart, which provides information on how to avoid investment and pension scams. You can access this service here: https://www.fca.org.uk/scamsmart. If you are concerned you may have already fallen victim to a scam, you can call Action Fraud on 0300 123 2040 or use their online reporting tool here: https://www.actionfraud.police.uk/reporting-fraud-and-cyber-crime.
Financial scams are becoming more and more prevalent in today’s society. Pensions are no different, so it’s more important than ever to be vigilant and ensure you do all you can to protect the money you’ve worked your whole life to save. If all else fails, just remember the old adage…
If something sounds too good to be true, it probably is.
This article has been written by Wealth Management Consultant, Kelly Chapman.
All content correct at time of writing (September 2024).
